Beware of the elephant traps! A brief guide to common tenancy issues

Some estates are landlord to a number of tenancies, whether they are agricultural, residential and/or commercial. Birketts’ Property Litigator Naomi Newell addresses the elephant traps to be aware of in the most common tenancies.

Farm Business Tenancies (FBTs)

FBTs of longer than two years do not terminate on the date given in their terms; they have the ability to roll over on a year-to-year (“periodic”) basis unless terminated with a statutory notice under the Agricultural Tenancies Act 1995. There are two types of statutory notice and the correct one should be served depending upon whether the FBT is to end on its contractual end date or during the periodic phase of the tenancy. As with all statutory and contractual notices, the key elephant trap is ensuring effective service of the notice. The FBT’s terms on notice service should be carefully considered and complied with as, if they’re not, there is rich ground for dispute as to whether the notices are valid.

Assured Shorthold Tenancies (ASTs)

Where they can, landlords offer residential occupation rights to farm workers to incentivise employment at their farm. Occupation is usually in farm cottages on the holding and these will ordinarily be governed by the Housing Act 1988. It is advisable to avoid Assured Agricultural Occupancies (“AAOs”) for two key reasons:

1. Once a worker has ended their employment on the farm, they will continue to have the right to occupy the cottage even if the landlord wants the cottage back for another farm worker; and
2. AAOs carry succession rights. This means that qualifying people, for example a widow or widower, will have the right to continue occupying the cottage after the farm worker has died.

AAOs are automatic where two statutory conditions are fulfilled: the tenancy and agricultural worker conditions. The key point to note here is the “agricultural worker condition”. Here, if the individual has worked for 91 out of the previous 104 weeks in agriculture, they will automatically fulfil this condition. Given how often a farm worker stays on longer than initially anticipated, we will usually advise landlords that it might be worth serving a precautionary pre-AST notice.

The pre-AST notice is a statutory notice served before the worker starts occupying the cottage. The notice confirms that the tenancy will not be an AAO and will instead be an AST. The most common mistake we see is service of notices after the worker has moved into the cottage and, in this case, the notice will not be effective. If landlords find this with farm workers’ occupations, they should seek our advice as to how best to manage things. Where landlords are proposing to grant residential occupations to farm workers and they’re thinking of serving a pre-AST notice, it’s important to note that the notice needs to comply with various statutory requirements.

Landlords: just get in touch if you need any help with drafting and serving these notices.

Please also take our advice if you are considering granting your agricultural occupant a service occupancy to divert the aforementioned provisions. It almost always won’t work and your employee will have become an AAO.

Commercial tenancies: the Landlord and Tenant Act 1954 (the 1954 Act)

Where a tenant’s occupation is for the purposes of a business, the provisions of the 1954 Act are engaged. The 1954 Act gives tenants the automatic right to renewal of their leases and, as some landlords will decide that they want to avoid this because they do not want their tenants to occupy indefinitely, they will opt to “contract-out” of the 1954 Act before the lease begins.

The contracting-out procedure is technical – the content of the paperwork is prescribed by law and there are strict timing requirements – so landlords should seek our guidance to get this right. We frequently deal with issues arising from landlords allowing people into occupation of premises on an informal basis and then later discovering that businesses are being run from those premises. In agricultural contexts, common scenarios include people taking up occupation of premises for their own horses, only to then take on more horses for others and essentially running a commercial (albeit small scale) livery. Landlords should seek our advice, even if on a precautionary basis, before a tenancy begins to avoid the risk of litigation when they want to terminate.

When a properly contracted-out tenancy is approaching the end of its term, it’s good practice for landlords to arrange a hand-back on the lease’s end date. Any holding-over after the end of the lease should be avoided because it’s possible for tenants to re-gain 1954 Act protection even if the contracting-out was correctly followed before the lease began. In order that landlords’ hard work to contract-out is not lost after expiry of the lease, we strongly advise that landlords seek our guidance as early as possible if they think tenants will need to hold-over.

Landlords and tenants can still serve statutory notices seeking possession where leases are not contracted out of the 1954 Act but there is scope for the other party to challenge the notice in court. Given the likelihood of court proceedings arising following service of 1954 Act notices, landlords and tenants alike should seek our advice early on.